His call came as Gordon Brown, the Shadow Chancellor, declared "a new war on poverty", promising a string of measures to get people back to work. They included employer subsidies and a "green corps" to pay the young to do environmental tasks.
Mr Davies, a co-author of yesterday's Rowntree Foundation report which said the gap between rich and poor was at its widest for 50 years, said that the unprecedented widening of inequalities was "a sign of a malfunctioning economy". It was also "an issue of growing concern to business", he added. "Too many people in employment are not receiving training and too many people out of employment are not being trained."
Growing numbers unable to contribute to growth were "a drag anchor" on both the economy and companies, he told a conference to launch the report, "because one way or another we pay the price, through taxation for benefits, the health service or the criminal justice system".
Shifting public spending to invest in success rather than compensate for failure was difficult in a recession. But with the economy growing "there should be some scope to expand active labour market measures".
The inquiry team called for investment before tax cuts and warned that market mechanisms alone will not deliver the levels of education, training and investment needed.
Mr Brown said the report had "demolished the three central Conservative arguments about their economic and social policies". Wealth had not trickled down, inequality was not essential for economic efficiency and laissez faire and deregulation had not ensured prosperity and social justice.
The Prime Minister had said on Thursday that government had a responsibility to reduce inequality, yet on the same day he had "sanctioned pay awards which will worsen inequality".
What was needed, the Shadow Chancellor said, was "a new political will to do what is right in the interests of social justice and economic efficiency".
A war on poverty required new solutions, he added, and a guaranteed training component should be required from private firms for 16-and 17- years-olds.Reuse content